A GOOD START: GOAM COMMITS FUNDS TO NUCLEAR SAFETY

C O N F I D E N T I A L SECTION 01 OF 03 YEREVAN 001538

SIPDIS

SIPDIS

DEPARTMENT FOR EUR/CARC, EUR/ACE AND ISN/NESS-PMETZ
DEPARTMENT OF ENERGY FOR BOB MOFFITT

E.O. 12958: DECL: 11/02/2016
TAGS: ECON ENRG PNNL AM
SUBJECT: A GOOD START: GOAM COMMITS FUNDS TO NUCLEAR SAFETY
UPGRADES AND PLANT DECOMMISSIONING

REF: YEREVAN 910

Classified By: CDA A.F. Godfrey for reasons 1.4 (b,d).

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SUMMARY
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1. (C) The GOAM has pledged USD 5.3 million towards safety
upgrades at the Armenian nuclear power plant (ANPP) and USD 1
million annually to support Armenia's newly established
decommissioning fund. The European Commission and the U.S.
also proposed between USD 6-7 million each for safety
upgrades leaving a relatively modest (approximately USD 7
million) shortfall in funds needed to complete the list of
critical safety upgrades identified by the IAEA. The GOAM's
pledges are evidence of its willingness to cooperate with the
international community on nuclear energy, but Armenia still
must demonstrate commitment by reinvesting more energy sector
revenues into plant safety and maintenance. Continued
targeted USG assistance makes sense, to promote safe and
responsible energy policies. END SUMMARY

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GOAM PLEDGES USD 5.3 MILLION TO SAFETY UPGRADES
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2. (C) An IAEA-supported donors' conference was held October
12-13, as a follow-on to a December 2005 technical conference
in Vienna. At the Vienna Conference, the IAEA identified a
list of priority safety upgrades needed at the ANPP the total
cost of which was estimated by plant staff to be USD 35
million. Donor estimates of the cost were modestly higher.
The objective of this follow-on conference was to identify
funding for the various upgrades. Many of the upgrades
identified in the IAEA list are already underway thanks to
support from the European Commission (EC),U.S. and U.K. The
GOAM has provided past support as well (both for safety
equipment and operational safety improvements). At this
conference, the Deputy Energy Minister announced the GOAM
would allocate USD 1.5 million annually to additional safety
upgrades and the GOAM identified a total of USD 5.3 million
in projects from the IAEA list which it intends to fund. The
EC and U.S. made similar proposals of USD 6-7 million each
over the next three years contingent on budgetary approval.
The U.K. program is scheduled to phase out in March 2008 and
the U.K. was not able to commit any additional funds. The
remainder needed to complete the IAEA list (based on plant
staff cost estimates) is approximately USD 7 million. It is
important to note, however, that some of the items on the
IAEA list are diagnostics which may identify additional work
that needs to be done.

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POSSIBLE USG SUPPORT FOR REDUNDANT INSTRUMENTATION
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3. (C) Unfunded items on the IAEA list included a USD 3
million project to develop enhanced instrumentation
redundancy and construction of a back-up emergency control
panel in a secondary location estimated to cost USD 2
million. These projects were identified as important,
priority 1 and 2 improvements which the U.S. might usefully
support if funding becomes available. Apparently, these
improvements had been included in past USG project lists, but
were deleted due to funding limitations.

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REGULATOR RECOVERING FROM MOVE TO MIN. OF NATURE PROTECTION
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4. (C) Representatives from the Armenian Nuclear Regulatory
Agency (ANRA) told conference participants that the status of
the regulator has improved significantly. Staff salaries
have doubled, allowing the ANRA to rehire (or contract for)
approximately one third of the staff who left when salaries
were slashed when ANRA moved into the Ministry of Nature
Protection in 2003. ANRA has also started a program to hire
and train a new generation of staff (at present most staff
are 50 or older, leaving a vacuum in the junior ranks). ANRA
remains understaffed however, with only 16 full-time
employees. The EC is currently providing some support to
ANRA, but conference participants agreed that additional GOAM
and donor support is needed to strengthen ANRA to the point
where it can effectively regulate nuclear issues.

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A SIGNIFICANT STEP FORWARD ON DECOMMISSIONING

YEREVAN 00001538 002 OF 003


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5. (C) USAID-supported energy experts at PA Consulting raised
concerns about the management of the decommissioning fund,
level of GOAM support and the nonexistent role of GOAM
regulators in fund management. Conference participants
agreed, however, that having the fund in place was a good
first step. The GOAM also pledged to work with donors to
improve fund management. (COMMENT: The rushed approval of
the decree on the eve of the conference appears to have been
a successful effort by the GOAM to make sure that they had
something to bring to the table. END COMMENT). A million
dollars annually is woefully insufficient to accomplish
shutdown and decommissioning beginning in 2016, the deadline
to which the GOAM has agreed if replacement power is
available. The Energy Minister hoped for concessionary donor
funding to make up the difference. He called specifically on
the EU to support the first phase of decommissioning as part
of a 100 million Euro assistance package that has been under
discussion for some time. The USG did not commit any
financial resources to decommissioning, but has provided and
will continue to provide, extensive technical assistance to
support development of the decommissioning plan.

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POSITIVE CASH FLOWS, ANOTHER POSSIBLE SOURCE OF FUNDING?
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6. (C) According to USAID-funded contractor PA Consulting, in
the past two years there has been a significant positive cash
flow from certain parts of the energy sector which could be
redirected into either plant safety upgrades or
decommissioning. Revenues at the Voroton Hydro Power Station
exceed operating costs by approximately USD 20 million
annually if operations continue at normal levels. ANPP
revenues also include approximately USD 1.5 million annually
for plant safety upgrades and additional funds for non-safety
capital improvements (such as dry spent fuel storage
expansion). The GOAM's plans for the Voroton funds are not
yet clear, though a portion is likely being spent on
upgrading the transmission lines in southern Armenia. These
cash flows are also contingent on variable production costs;
there is no certainty that Armenia will benefit from these
positive cash flows in future years. (COMMENT: While it is
unlikely that the GOAM will dedicate all of these funds to
the ANPP and/or decommissioning, it may be able to use a
portion of these funds to redress the shortfall in the budget
needed for safety upgrades. END COMMENT) At the conference,
the U.S. delegation underscored the need to develop a
"culture of safety at the plant evidenced...by reinvesting a
sufficient portion of the cash flow obtained from the energy
sector into the plant to ensure plant safety and
maintenance."

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SUPPORT FOR A NEW PLANT
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7. (C) The ANPP provides approximately 40 percent of
Armenia's electricity and the GOAM has made it clear that
they must identify replacement capacity before the current
plant is decommissioned. At a conference in July 2006, the
GOAM, with technical assistance from USAID, identified
construction of a new nuclear power plant as the least-cost
option for developing replacement capacity (reftel). The
GOAM has asked the U.S. and other donors to support
construction of a new plant. At the October conference in
Yerevan, we responded: "Once Armenia has demonstrated its
commitment to a culture of safety and a comprehensive
decommissioning plan, the U.S. will be ready to engage with
Armenia on the question of a new nuclear power plant. We
would consider for example, technical assistance to develop a
proposal for a new plant, facilitating trips by private
American investors interested in the project, and support to
help Armenia identify other possible sources of funding for
plant construction." The GOAM reaction to our position was
very positive and they welcomed our support.

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COMMENT: CONTINUED SUPPORT MAKES SENSE
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8. (C) The GOAM's pledges to support safety upgrades and a
decommissioning fund are tokens of good faith, but we need to
see if the GOAM will follow through. The U.S. plays a key
role, providing not only financial support, but technical
expertise and institutional knowledge which contribute
greatly to improved safety at the plant. USG-funded experts

YEREVAN 00001538 003 OF 003


have established strong working relationships with plant
managers and personnel and with counterparts at the Ministry
of Energy, the Armenian Nuclear Regulatory Authority and the
Public Services Regulatory Commission. We should match
increased GOAM commitment with increased U.S. assistance to
help the GOAM take prudent steps toward safer power
generation. END COMMENT.


9. (U) Members of the U.S. delegation to the conference,
including DOS Senior Coordinator for Nuclear Safety,
ISN/NESS, Patricia Metz and USAID Energy Restructuring and
Regulatory Specialist Walter Hall, have cleared on this
telegram.
GODFREY